Sunday, April 29, 2012

U.S. markets rose on Friday on
better-than-expected earnings from Amazon. The S&P 500 rose 3.38
points or 2.24% to 1,403.36. The Dow gained 23.69 points or 0.18% to
13,228.31. For the week, the S&P 500 gained 1.8% for its best
week in a month, as strong corporate earnings overshadowed concerns
about the euro zone. The S&P 500 also closed above the
psychologically-important 1,400 level.

U.S. First Quarter Growth
Disappoints

On Friday, the U.S. Commerce Department
announced that first quarter GDP growth was 2.2%, which was lower
than the 2.5% the market expected. However, it was higher than the
1.5% that economists expected at the beginning of the year, which
prevented the market from falling on the news. On Thursday, U.S.
initial jobless claims also disappointed the market, when it fell by
only 1,000, to 388,000.

Spain Downgraded by S&P

On Friday, S&P announced that it is
downgrading Spain's rating by two notches, from A to BBB+. S&P
has also placed Spain's rating on negative watch, and stated that
Spain's banking system was too reliant on government funding.
Meanwhile, Italy's bond auctions disappointed investors, with the
yield on its 10-year debt at 5.84%, which was 60 basis points above
last month's auction.

Federal
Reserve Reiterates Stance

On Wednesday,
after the Fed's much-anticipated meeting, it announced it is
continuing its stance of keeping interest rates at the current level
until the end of 2014. However, it did not mention QE3.

UK Slips Into
Double-Dip Recession

Also on
Wednesday, the UK announced that first quarter GDP shrank by 0.2%,
which was weaker than the 0.1% growth the market expected. With the
negative 0.3% growth in the fourth quarter, the UK is now officially
in a double-dip recession.

Apple Boosts
Markets

On Wednesday,
U.S. markets received a boost from Apple's earnings. The company's
profits rose 94% from last year to $11.6 billion. EPS was $12.30,
higher than the $9.94 the market expected.

Markets Tumble
on Netherlands and France

On Monday,
markets tumbled when the Prime Minister of the Netherlands resigned
due to a disagreement in parliament over austerity measures. In
addition, with the second round of federal elections in France about
to get underway, investors faced a large degree of uncertainty. As a
result, the yield on Spain's 10-year government bonds rose above 6%,
and stock indices in Europe fell more than 1%.

Looking Ahead
to Next Week

Investors will be
paying close attention to the U.S. March jobs report on Friday. On
Wednesday, the ADP jobs report will be announced. In addition,
investors will continue to pay attention to corporate earnings. So
far, 57% of S&P 500 companies have posted earnings. Next week,
companies including Visa, Kraft and Prudential will be reporting
results.

With the
situation in Spain showing no signs of improvement, it will take
stronger-than-expected earnings just to keep the market from falling.
If the yield on Spanish debt rises, then the market will likely fall
regardless of earnings results. With the UK now in a double-dip
recession, it will likely conduct quantitative easing, which should
boost the prices of gold and silver.

Sunday, April 22, 2012

U.S. markets rose slightly on Friday, as strong corporate earnings overcame worries about the euro zone. On Friday, the S&P 500 edged up 1.61 points or 0.12% to 1,378.53. The Dow rose 65.16 points or 0.50% to 13,029.26. For the week, the S&P 500 rose 0.6%, after falling in the two previous weeks.

Strong Results From Microsoft and IBM Boost Shares

On Friday, Microsoft posted better-than-expected results. Sales rose 6%, while earnings was $5.11 billion, which was better than what the market expected. As a result, shares rose 4% when markets opened the next day. Meanwhile, IBM posted earnings of $2.78, better than the $2.65 that analysts expected. In addition, the company raised its full-year earnings outlook.

Market Breaths Sign of Relief on Spanish Bond Auctions

On Thursday, markets breathed a sign of relief when 10-year Spanish bonds were sold at a yield of 5.743% at an auction, lower than the critical level of 6%. However, new data indicated that the effects of the LTRO are beginning to weaken.

Stocks Surge on Goldman Sachs Earnings and IMF Forecast

On Tuesday, the Dow rose almost 200 points, after Goldman Sachs and Coca Cola reported better-than-expected results. Goldman Sachs reported EPS of $3.92, better than what the market expected. In addition, the IMF raised its world economic growth forecast for 2012.

Spain Concerns Cloud Markets

On Monday, yields on Spain's 10-year government bonds rose above the critical level of 6%. In addition, Spain's 5-year CDS reached a record high. It was revealed that Spain's deputy finance minister has asked the ECB to buy Spanish debt to push down the yield. As a result, the euro fell below the US$1.30 level.

Looking Ahead to Next Week

Investors will continue to focus on earnings results next week, when 180 S&P 500 companies will be reporting. With the yield of Spanish government bonds near unsustainable levels, earnings will have to continue to beat expectations in order for the market to head higher. Even with strong earnings, stocks could head lower once earnings season is over, as the situation in the euro zone becomes the center of investor focus during a season that is traditionally weak for stocks.

Sunday, April 15, 2012

U.S. markets fell on Friday on weaker-than-expected first quarter China GDP and the rising yield on Spanish sovereign debt. On Friday, the S&P 500 fell 17.30 points or 1.25% to 1,370.27. The Dow dropped 136.99 points or 1.05% to 12,849.59. For the week, the S&P 500 dropped 2%, while the Dow fell 1.4%. It was the worst week for the S&P 500 so far in 2012.

China GDP Disappoints

On Friday, China announced 1st quarter GDP growth of 8.1%, which was lower than the 8.4% the market expected. It was also the slowest growth in almost 3 years. This sparked concern about China's ability to boost world economic growth, at a time when the euro zone is in a recession.

Spanish Yields Spark Euro Zone Concerns

On Friday, the yield on Spain's 10-year government bonds approached 2012 highs, while CDS on Spanish government debt rose to a record high. The yield on Spain's 10-year government bonds rose to almost 6%, while CDS on Spanish debt reached 500 basis points for the first time. As a result, Europe's three largest indices fell on Friday, with the German DAX and the French CAC each falling by about 2%.

Concerns about the euro zone debt crisis negatively affected markets for much of the week. On Thursday, Italy had a disappointing bond action. 3-year government bonds were auctioned at 3.89%, much higher than the 2.76% in March. In addition, Italy's stock market fell 5% at one point on Wednesday.

U.S. Initial Jobless Claims Disappoint

After several weeks of falling initial jobless claims numbers, the claims number on Thursday disappointed markets when it rose over the previous week. Initial jobless claims rose to 380,000, worse than the 355,000 the market expected.

Looking Ahead to Next Week

Investors will be paying close attention to the second week of earnings season next week, when 10 Dow components including Intel will be reporting earnings. In addition, banks including Citigroup, Goldman Sachs and Morgan Stanley will be reporting results. This follows the better-than-expected earnings announced by JP Morgan and Wells Fargo last week.

With two consecutive weeks of decline for U.S. markets, if earnings beat expectations next week, markets will likely rise for the week if the euro zone situation does not worsen. However, if Spanish yields continue to climb, it would neutralize gains that the market achieves next week.

Sunday, April 8, 2012

U.S. markets fell on Thursday in a shortened week of trading, as rising yields on Spanish government debt continued to trouble markets. On Thursday, the S&P 500 slipped 0.88 points or 0.06% to 1,398.08. Meanwhile, the Dow fell 14.61 points or 0.11% to 13,060.14. For the week, the S&P 500 fell 0.7%, which is its worst weekly performance in 2012.

U.S. Jobs Numbers Disappoint

On Friday, the U.S. jobs data for March showed a gain of 120,000 jobs, which was worse that the 203,000 the market expected. The gain was also the smallest in 5 months. However, the unemployment rate in March fell by 0.1% to 8.2%. It was better than the 8.3% economists expected, and was the lowest since January 2009. However, the 0.1% fall in unemployment was likely due to workers giving up searching for work.

Initial Jobless Claims Falls to 4-Year Low

U.S. initial jobless claims have been consistently below the critical 400,000 mark in recent weeks. On Thursday, initial jobless claims fell by 6,000 from the previous week, to 357,000. It was the lowest level in 4 years.

Spanish Yields Sink Markets

Following weak demand in Spain's bond sale on Wednesday, Spanish debt yields rose to levels last seen during the euro zone debt crisis. Investors became concerned about whether Spain would eventually need a bailout. This sank world markets on Wednesday, and continued to drag on markets on Thursday.

Federal Reserve Minutes Disappoints Investors

On Wednesday, minutes from the recent Federal Reserve meeting helped to push markets lower. The minutes indicated the Fed will not consider another round of quantitative easing in the near future. World markets fell as a result, since investors prefer more liquidity in the markets.

Looking Ahead to Next Week

The start of earnings season next week will likely determine the direction of U.S. markets. Companies including JP Morgan and Google will be reporting their quarterly results. In addition, investors will be closely watching data from China next week, as the country will be releasing first-quarter GDP, inflation and trade balance numbers.

The weaker-than-expected U.S. March jobs data on Friday will likely pull markets lower on Monday. In addition, the rising Spanish bond yields will likely affect markets negatively early next week. Thus, unless companies post better-than-expected earnings, U.S. markets will likely fall next week.

Sunday, April 1, 2012

U.S. markets ended the quarter on a positive note on Friday. Data showed U.S. consumer spending rose by the most in seven months, while consumer confidence in March reached its highest level in 12 months. On Friday, the S&P 500 rose 5.19 points or 0.37% to 1,408.47. The Dow climbed 66.22 points or 0.50% to 13,212.04.

For the first quarter, the S&P 500 rose 12%, while the Dow gained 8%. It was the best first quarter since 1998 and the best quarter overall since 2009.

Consumer Spending and Consumer Confidence Both Rise

U.S. February consumer spending rose 0.8% from January, higher than the 0.6% increase that the market expected. Meanwhile, the Reuters/University Michigan survey showed consumer confidence in March increased to 76.2, an increase of 0.9%.

Initial Jobless Claims Encouraging

On Thursday, weekly initial jobless claims fell 5,000 from last week to 359,000. It was the lowest level since April 2008, and was another week the figure has remained under the critical 400,000 level.

Housing Market Still Weak

On Tuesday, the S&P/Case-Shiller index fell for the 9th month in a row, to its lowest level since 2003. However, many market watchers believe the housing market is nearing its bottom.

Ben Bernanke Hints at More Easing

On Monday, while attending a forum, Federal Reserve Chairman Ben Bernanke said that despite the improving job market, much of the improvement has been from companies decreasing the number of people they are cutting, rather than increase in hiring. Thus, the job market has not been keeping up with the improvement in the economy. Analysts believe that Bernanke's statements indicate a possibility that he would conduct further quantitative easing.

Looking Ahead to Next Week

After a very strong first quarter for stocks, markets are experiencing a pause in the rally. Investors will focus next week on the March nonfarm payrolls number. In the subsequent week, the direction of the markets will likely be determined by the earnings season. Investors will likely look at company guidance for effects of Europe's entry into a recession and slowing growth in China on US corporate earnings.

With strong gains in the first quarter, further gains would only materialize if there are strong results during earnings season. In addition, the high price of oil (Brent at $122.88/barrel while WTI at $103.02/barrel on Friday) will likely limit gains in the coming week.